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Wednesday, October 18, 2006

PINOY KASIPinoy Kasi : 'Utang' to finance

By Michael TanColumnistInquirer
Posted date: October 20, 2006

"UTANG" is more than just a debt. During the precolonial period, one became an "alipin" (loosely translated as slave) to pay off a debt. A copper plate found in Laguna, and dated back to the 10th century, certified that someone named Namrawan had paid off his debts and that he and his descendants had been freed of obligation.

"Utang" still has negative connotations today, almost as if we have some collective memories of that precolonial system of debt peonage, where we run the risk of a life of debt and destitution, passed on to succeeding generations.

"Utang" consists of endless cycles of lending and borrowing, one which is still played out daily in all aspects of the Filipino's life, from our $53.9-billion national debt, down to the mortgages we pay on homes, to the "5-6" usury (P5 becomes P6 in a week) and pawnshops charging 1.0 percent for a one-day loan.

Which is why this year's Nobel Peace Prize should take on special meaning for us. The prize went to a Bangladeshi economist, Muhammad Yunus, and his Grameen Bank, known for pioneering micro-finance (or microcredit) programs that have transformed the lives of millions of poor Bangladeshi. As early as 1984, our own Ramon Magsaysay Award Foundation already recognized Yunus' work, giving him the award for community leadership. The Nobel committee, in awarding Yunus the peace prize, pointed out how poverty alleviation is linked to peace.
I thought of sharing some of my observations of micro-finance projects in the Philippines, many of which I saw -- successes as well as failures -- while working with NGOs. There are many lessons to pick up from Yunus' program, but we also need to be careful as we try to evolve our own versions for the Philippines, whether we work in a bank, an NGO, or an employer looking for ways to help the staff.

From $27 to $5 billion

It's worth recounting the story of Yunus' program. Back in 1974, Yunus was a professor of economics, a field where you're supposed to think macro, think big. But Yunus had been intrigued by women in a nearby village who were trying to make a living by making bamboo stools. The women were having difficulties because they were getting their credit from usurers.
He learned that all it took was $27 to start a business going, but when that money came from usurers, it would plunge the borrower into lifetime debt. The women could not borrow from the banks because, like the poor everywhere, the banks considered them to be too risky, unlikely to pay back their loans and unable to put up any kind of collateral.

Yunus is known to be adamantly against charity doles, and will not respond to beggars. Instead of alms, he developed his microcredit scheme, with very low interest, plus a support program to help the women sell their products directly, without middlemen. Within a year, the women had paid him back, and he continued to give out these small loans, almost all of which were paid back on time.

In 1983, he set up Grameen Bank, specializing in microcredit. The bank has loaned out $5.7 billion and the program has been copied throughout the world, including the United States.

Think small, dream big

Governments as well as NGOs throughout the world, including the Philippines, have since launched similar programs. The chances of the programs succeeding depend pretty much on the same principle, which can be summarized as thinking small, dreaming big. Here are some of those principles, plus some specific points for the Philippines.

First, the loans are small, as we saw with the initial $27 loan Yunus made. In the Philippines, loans have generally been a few thousand pesos, although lately it has become more difficult to think small, mainly because of the high overhead costs, mainly rent. In Metro Manila today, a loan of P50,000 may not even be enough to start a "sari-sari store" [neighborhood variety store].

Second, while the loans are given out to individuals, the borrowers must belong to a group, the members guaranteeing one another's loans. One person's failure to repay may mean the entire group being penalized.

Third, and this relates to the second point, the finance program is often tied to a community project, which helps to identify the organizations that might be worth "investing" in. The projects may be in such areas as agriculture, health or even environmental conservation.
Finally, the loans go mainly to women. The Grameen Bank currently has some 6.5 million borrowers, 97 percent of whom are women. Throughout the world, it seems women are better at handling micro-finance and this seems to tie in to traditional gender roles. Women handle domestic affairs, and are very conscious about budgets being stretched for the family's survival.

For poor women, money earned is money to be saved, and invested in small income-generating ventures. Men are more "political" animals, more concerned about keeping smooth relations with peers and the outside world -- which means, too, that money earned is all too easily spent for peers.

A caveat here: In societies where men dominate, as in the Philippines, women are still vulnerable to pressure from their spouses or boyfriends, so it's not surprising to hear of cases where women are ready to pay back a loan, but default because the husband gets his hands on the money.

Political threats

Microcredit is really more than a loan program, which is why I prefer the term micro-finance, a kind of bootstrap to help the poor help themselves. It is a tool for community organizing and -- pardon the cliché -- empowerment.

The micro-finance institution not only provides money but support services, for example, conducting a market study, or helping to source supplies at low cost. Some of the micro-finance programs, not surprisingly, are part of gender projects, where women learn to assert their rights, which is so important if they are to say no to a husband's pleas for a conjugal "utang."
Ultimately, micro-finance depends on the group or organization that takes in the "loan." It is this group that helps to ensure repayment and to find ways to keep the money circulating, converted into productive capital.

The main threat, then, to micro-finance is when it is used as a political tool. Micro-finance then becomes a fancier term for a dole, the politician more interested in creating political debts and garnering more votes. Patronage and dependence are reinforced, defeating the purpose of micro-finance.

I think micro-finance is best left to private banks and NGOs, with government stepping in as a regulator, and creating conditions for it to work, for example, by putting up low-cost spaces for vendors.

With Yunus' Nobel Peace Prize, I hope we'll begin to hear more success stories about micro-finance in the Philippines, where people are finally able to break the vicious cycles of "utang."


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